Eevery year about 7-10 million young Indians will enter the labor market. They are better educated than any generation before them – the average number of years of formal schooling for those aged 15 and over has reached 10 years nationally – and with hopes and expectations to match. This raises key questions: Can the Indian economy productively absorb the current generation of new workers, including youth and women? Under what conditions? And how can India ensure that its demographic potential translates into meaningful employment and economic growth?
The recently released Periodic Labor Force Survey (PLFS) 2025 report offers some key insights. It points to measurable progress on several dimensions while highlighting some of the issues that need to be addressed to fully exploit India’s demographic dividend.
Encouraging employment trends
The labor force participation rate is 59%, the labor force participation rate is 57%, and the unemployment rate is 3%. These are robust leading indicators. Youth unemployment is falling from 2024, while increasing among rural and urban youth. PLFS monthly bulletins through 2025 also point to improving trends in female participation. Female LFPRs in rural areas rose over the following months until September 2025, reaching their highest level since May. These trends show a steady and directional improvement over several survey rounds.
The quality of employment has also improved. The share of regular wages and paid jobs increased from 22% to 24%, with increases recorded for both men and women. Correspondingly, the share of self-employment fell from 58% to 56%. Given that formal paid employment is associated with higher earnings and access to social protections such as paid leave, this shift in the nature of employment is among the more important signals in the 2025 data.
Wage trends reinforce this pattern, especially for women. In regular paid employment, women’s earnings rose by 7% compared to 6% for men. In self-employment, women’s earnings increased by 9% compared to 8% for men, while in casual work women’s wages increased by 5%, although men’s wages remained largely unchanged.
At the same time, there remains room for further reduction of the gender gap in absolute earnings. Analysis of the data shows that women earn about 76% of men’s wages in paid work, about 69% in casual work and only 36% in self-employment. While disparities remain significant, the shift to paid employment is beginning to yield more tangible economic gains for women.
Structural transformation also creates better job opportunities. Agriculture’s share of employment fell to 43%, while manufacturing and services rose to around 12% and 13%, respectively. Young people, especially young women, are increasingly entering the manufacturing and service industries. Occupational segregation by caste and gender among younger cohorts is measurably lower than among older ones, reflecting the cumulative effects of expanded access to education and increasing social mobility, which is now beginning to translate into more inclusive labor market outcomes.
Skills gaps and job creation
The first is the transition from education to employment. India has significantly expanded tertiary enrollment, making higher education more accessible across income groups. Nevertheless, gaps remain. For example, between 2004 and 2023, roughly 5 million graduates entered the labor market annually, but only about 2.8 million secured employment of any kind.
Limited access to formal skills training is also a problem. Only 4% of individuals aged 15-59 have completed formal vocational or technical education. Yet among those who do, labor force participation is significantly higher – 83% for men and 51% for women – underscoring the strong link between skills training and employment that needs to be both used and expanded.
Another problem lies in the continued participation of women in the labor force. While the majority of men outside the labor force cited education as the primary reason, women pointed to childcare and domestic responsibilities, revealing structural constraints stemming from the uneven distribution of unpaid work. For example, urban self-employed men work about 17.5 hours more per week than women, and in regular paid employment the gap is about 7.9 hours per week, reflecting the persistent double burden of paid and unpaid work that women disproportionately experience. While the monthly PLFS data shows some improvements, India’s gender gap in labor force participation remains one of the widest in the world.
The fourth challenge is the NEET group. Around 25% of people aged 15-29 fall into this category. Additionally, these individuals are not counted in the unemployment figures because they are no longer actively looking for work, meaning that the true extent of the unused labor force is not captured. Without early intervention, this disconnect can lead to young people being disengaged from the workforce in the long term, leading to lost income, lower productivity and slower economic growth.
Looking ahead, India is nearing the peak of its demographic dividend, with the share of the working-age population expected to start declining after 2030. We are only one political cycle away from this peak, which emphasizes the urgency of a targeted political response to the outlined challenges. Moreover, the context in which this window of opportunity opens is perhaps more challenging than any before it: artificial intelligence is reshaping skills requirements, the green transition is changing employment patterns across industries, and geopolitical shifts are reshaping global supply chains.
The way forward
These changes present significant opportunities – but only if the Indian workforce is sufficiently skilled and engaged in productive employment to take advantage of these opportunities. The PLFS 2025 data points to a labor market moving in the right direction – gradually formalizing, generating wage gains and expanding opportunities for women and youth.
However, translating these gains into meaningful productivity-based economic growth will require more targeted interventions: scaling industry-relevant skills training, enabling women’s labor force participation through gender-responsive interventions, and strengthening pathways to stable employment with expanded social protection and a focus on green sectors. Targeted programs such as apprenticeships will also be essential to re-engage NEET youth as active contributors to the economy.
(Phalasha Nagpal is Head of Livelihoods and Gender, Oxford Policy Management)
Published – 15 May 2026 08:30 IST
